Question-and-Answer Session
Operator
Your first question comes from Brian Foran - Goldman Sachs.
Brian Foran - Goldman Sachs
I guess one of the big concerns with Zions is that the balance sheet keeps getting a little bit more opaque each quarter and it’s not a criticism. I realize you’re working under some pretty unique issues and unique to put it lightly, accounting standards that are out there, but as we try to cut through the noise of discount accretion held-to-maturity versus available-for-sale, these bargain purchase gains.
What are the key benchmarks you are focused on and you would focus investors on for the three core issues, which in my mind would seem to be whether you have enough capital? Whether credit deterioration is accelerating or decelerating and the long term earnings of the franchise is?
Harris Simmons
I’ll start with the latter one. I think that the core net interest margin is critical, because that’s the key driver of our ability to out of earnings observe ongoing cost of the other items that you mentioned, related to any other items without feeding too much into capital levels.
So, because that the fact the core margin is still expanding even with some increase in NPLs and the fact that it expanded enough such that net interest income pre-provision increased despite the balance sheet shrinking is to me pretty critical and as long as that number stays in $950 million to $1 billion plus range, we are going to be pretty pleased at this point.
The second credit quality, that’s probably the single biggest driver of where we go from here, we don’t probably and I don’t know of any bank that does disclose enough information to get you fully comfortable with what’s going on there. NPLs is not a complete guide they still increased on a gross basis at a fairly rapid rate, although on a net basis the dollar increase and the percentage increase was substantially smaller, meaning it is not getting ahead of us at an accelerated rate.
We do try to give you some information about other underlying trends that’s why I mentioned the early stage delinquencies, which were down, but the internal loan classification continue to increase, except certain areas.
It flattened out in Arizona and Nevada, where we’ve been slogging away at this for the longest time and they also flattened out in Texas and I’m not sure that’s a trend or not at this point, but I think it is too early to tell whether we are a peak or inflection point and credit quality I guess there’s some belief that things are still getting worse, but not quite at the same pace and that’s somewhat encouraging.
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